Eight banks face capital shortfall

Siddique Islam | Published: August 17, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

Higher capital requirement to meet Basel-III obligation and the deadweight of classified loans have resulted in capital shortfall in eight banks and substantial erosion in the surplus capital of 48 others.
The aggregate capital surplus of all banks came down to Tk 10.83 billion as on March 31 from Tk 23.96 billion three months before, according to the central bank's latest statistics.
Under the roadmap for implementation of the Basel-III framework, the banks will have to maintain 10.625 per cent of capital to risk weighted assets ratio (CRAR) under the Basel-III standard in 2016 instead of 10 per cent for 2015.
Such higher requirements have already come into effect from the Q1 of this calendar year aiming to strengthen stability in the banking sector, they explained.
The banks will have to maintain 11.25 per cent CRAR by 2017 and 11.875 per cent by 2018. Finally in 2019, it will hit the desired level of 12.50 per cent, according to the roadmap.
"The capital surplus of banks may fall further if the banks fail to earn a good profit in the coming years," a senior official of the Bangladesh Bank (BB) told the FE Tuesday.
In that case, the banks have mainly two options - sponsors have to inject more capital or banks have to retain their profits in the form of retained earnings or issuing stock dividend and also issuing rights shares - for complying with the Basel-III capital requirement.
"Another option is issuing sub-ordinate debt instrument, but with a limited issue size," the central banker explained.
Besides, the banks had kept aside more money from their capital for maintaining provisioning requirement against classified loans, according to the officials.
The declining trend in surplus capital also pushed down the CRAR of all banks to 10.62 per cent in the Q1 of this year. It was 10.84 per cent of the previous quarter of the last year under Basel-III calculations.
Talking to the FE, another BB official said the rising trend in non-performing loans (NPLs) is hindering the overall growth in the country's banking sector, not only capital surplus.
The amount of NPLs swelled by more than 15 per cent to Tk 594.11 billion during the Q1 of this year from Tk 513.71 billion in the preceding quarter.
"The banks will have to take effective measures to reduce the volume of their classified loans immediately," the central banker warned.
On the other hand, total regulatory capital of the country's banking sector increased slightly during the period under review because of upturn in credits.Â Â
The total regulatory capital rose to Tk 756.12 billion during the January-March period from Tk 753.52 billion in the final quarter of the last calendar year, the BB data showed.
However, three state-owned commercial banks (SoCBs) out of six, three private commercial banks (PCBs) out of 39 and two specialised banks (SBs) were on the list of those facing the capital shortfall during the Q1, according to the BB officials.
"The eight banks out of 56 have faced a shortfall of capital mainly due to the higher volume of their classified loans," the BB official said.
Higher NPLs have led to a rise in provisioning requirements, which ultimately prompted their capital shortfall, the central banker noted.
He also said all private commercial banks' CRAR was found on average 11.96 per cent as on March 31 last. "But it was the capital position of public banks that was a matter of grave concern."
The CARA of six SoCBs stood at 6.50 per cent as on March 31 this year while the CARA of two SBs were in negative territory at 32.87 per cent, the BB data showed.
Basel-III is a new global regulatory standard on bank capital adequacy and liquidity, agreed upon by the members of the Basel Committee on Banking Supervision.
The third of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis.
The Basel-III is set to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage.
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